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Natural Unemployment
What does it mean?
The lowest rate of unemployment that is sustainable in an economy over the long run. Keynesians believe that government can lower the rate of unemployment if it were willing to accept a higher level of inflation (the idea behind the Phillips Curve). However, critics of this say that the effect is temporary and that unemployment would bounce back up but inflation would stay high. Thus, the natural, or equilibrium, rate is the lowest level of unemployment at which inflation remains stable. Also known as the "Non-Accelerating Inflation Rate of Unemployment (NAIRU)".
In Other Words...
When the economy is said to be at "full employment", it is at its natural rate of unemployment. Economists debate how the natural rate might change. For example, some economists think that increasing labor-market flexibility will reduce the natural rate. Other economists dispute the existence of a natural rate altogether!
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Related Terms
Cyclical Unemployment | Frictional Unemployment | Keynesian Economics | Phillips Curve | Structural Unemployment
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